One of Canada’s largest cryptocurrency exchanges has been granted bankruptcy protection after its 30-year old founder died unexpectedly in India, taking with him passwords of tens of thousands of customers who are unable to access USD 145 million in funds.
Quadriga said it was unable to gain access to Canadian dollar 190 million (USD 145 million) of bitcoin and other digital assets after Gerald Cotten, its CEO and co-founder, died in December.
He died of complications arising from Crohn’s Disease, an inflammatory bowel ailment, while volunteering at an orphanage in India.
Many of the digital currencies held by Quadriga are stored offline in accounts known as “cold wallets,” a way of protecting them from hackers. Cotten is the only person with access to the wallets, according to the company.
Cotten’s sudden death has plunged Quadriga into crisis and left it struggling to figure out how to refund more than 100,000 of its users, CNN reported.
On Tuesday, the Vancouver-based company said it was granted creditor protection in the Nova Scotia Supreme Court in British Columbia as it tries to sort out its financial mess.
Cotten’s widow, Jennifer Robertson, described people posting inaccurate speculation on social media about “whether he is really dead.”
“For the past weeks, we have worked extensively to address our liquidity issues, which include attempting to locate and secure our very significant cryptocurrency reserves held in cold wallets,” Quadriga said in a statement.
“Unfortunately, these efforts have not been successful.” Robertson said that the laptop that Cotten used to run the currency exchange is encrypted, according to a copy of her affidavit posted online by cryptocurrency news site CoinDesk.
“I do not know the password or recovery key,” she said. “Despite repeated and diligent searches, I have not been able to find them written down anywhere,” she said.
The company has hired tech experts in an attempt to hack into Cotten’s laptop and other devices to retrieve the missing cryptocurrencies, but Robertson warned that at least some of them “may be lost.”
Quadriga, which is based in Vancouver, also owes about 70 million Canadian dollars (USD 53 million) in cash that it is unable to pay back, she said, citing difficulties accessing funds through the traditional banking system.
The Nova Scotia court appointed financial services firm Ernst & Young as an independent monitor that will oversee Quadriga’s efforts to resolve its financial problems.
The exchange, launched in December 2013, allowed users to deposit cash or cryptocurrency through its online trading platform, storing the digital coins on blockchain ledgers that are accessible only by an immutable alphanumeric code.
The company had 363,000 registered users, of which 92,000 have account balances owing to them in cash or cryptocurrencies, Bloomberg reported, quoting court filings. Cotten was the sole officer and director.
The Canadian High Commission in New Delhi told CNN that it was aware of Cotten’s death on December 9 and had “provided consular assistance,” but declined to reveal further details.
Elvis Cavalic of Calgary said that he bought a few hundred dollars of bitcoin using Quadriga’s platform.
When he tried to withdraw 15,000 dollars in his account in October, he could not.
“This is a tough lesson learned. I would probably avoid [cryptocurrency] in the future,” Cavalic was quoted as saying by the Canadian Broadcasting Corporation (CBC).
‘”They’ve left us completely in the dark. I’m kind of preparing for the worst,” Cavalic said.
The CBC reached out to lawyers for CIBC and Robertson for comment but did not receive a response by deadline.
While the case is unusual, it is not the first time the cryptocurrency industry has been hit by security concerns. Hundreds of millions of dollars’ worth of digital currencies have been stolen by hackers over the past few years.
In India, the Reserve Bank of India had banned the use of virtual currencies and informed the Supreme Court that allowing dealings in cryptocurrencies like Bitcoins would encourage illegal transactions.
The spectacular boom and bust in the prices of bitcoin and other cryptocurrencies have presented a quandary for governments around the world, which have taken differing approaches in trying to regulate their use. PTI